The present invention relates generally to the fields of real estate finance and information transfer, and more specifically to a system for ensuring that liens securing real property (e.g. deeds of trust) are released in a timely fashion after the obligation underlying the lien (e.g. the note) is fully or partially paid or satisfied following payoff.
There are two common types of real estate transactions utilizing lender financing: the sale; and the refinance. Both forms involve commitment from a lender to provide funds to borrowers necessary for the purchase or refinance the property. Both require establishment of certain rights (depending on jurisdiction) in the property for the benefit of the lender to secure the repayment of the loan. In a sale, the “Buyer” applies to a lender for funds to pay to the seller for the transfer of the title of real property. In a refinance an owner or “Borrower” applies to a lender for funds to replace or “payoff” a prior loan secured by real property. Assuming the loan is approved, in both transaction types, the Lender establishes a security interest or equitable right in the real property concurrently with the borrower/buyer that allows the lender to sell the property in the event of default and apply the proceeds to the balance of the defaulted Note.
To establish the security interest, the Lender requires the Borrower/Buyer to execute legal documents establishing this equitable interest or lien on the property. This lien document is then indexed and published in the public land record system of the particular city or county wherein the property is situated. The publication provides notice to the public that the lender holds a lien or security interest in the property. In the majority of jurisdictions, priority of the lien is of utmost importance. Priority is establish by the date of recording. A lien recorded prior in time to a second lien will have priority—that is the beneficiary of the lien with priority (the old lender for this discussion) will have the right to exercise certain rights inherent in the lien to the detriment of any lien holder later in time (the new lender). The priority status is sometimes referred to in the industry as “first in time first in right”. Hence, during the closing of the real estate transaction, measures are taken to establish the priority of the security interest of a lender providing funds to the transaction, over that of prior lien holders.
Lenders, for purposes of this application, shall be synonymous with Lien creditors. Notes and other contracts providing evidence of debt are generally used to describe the underlying obligations secured by the lien. Liens in this application shall include, without limitation, Deeds of Trust, Mortgages, Deeds to Secure Debt, etc. Settlement date for purposes of this application shall include without limitation date of disbursement, date of notice of payoff payment to old lender or date of escrow settlement. Such date or notice varies depending on jurisdiction.
In a typical real estate transaction the Settlement Agent or Escrow Agent orders an evaluation of the public record to establish the existing liens on the real property subject to the upcoming transaction. Such evaluation is in most cases based on an examination of the indexed records in the courthouse having jurisdiction of the physical location of the property. Title Searchers or Abstractors examine the records and report the legal title status to the Settlement Agent. This “Title Report” includes, among other data, the current owner, and current liens and encumbrances or claims of record on the property
There are many varieties of liens that may attach to title of real property. Although the embodiment of the subject invention applies to many types of liens, the lien that will be used for discussion purposes involves liens established by the owners of real property conveying a security interest to lenders in return for lender's payment of money to the buyer/owner for either the purchase of the property or the refinance of the real property. These liens are commonly called, Deeds of Trust, Deeds to Secure Debt, Mortgages, etc.
The borrower, title insurance underwriter, and/or new lender provides contracts and instructions to the Settlement Agent to payoff existing notes and satisfy or remove their liens in order to establish the proper priority of a new lien on the property. Usually a title company underwriter reviews the title report and enumerates certain requirements in a Title Binder to bind title insurance coverage for the benefit of the new lender. This title coverage protects the security interest of the new lender established by the new lien instrument. It is therefore important for both the lender and title insurance company that the prior liens be properly released or re-conveyed following closing of the new loan.
In a typical closing, the Settlement Agent collects funds from the new lender and various parties and disburses them pursuant to the terms of the settlement documents. One particular disbursement—the Payoff—is critical to the establishment of the new lender's priority security interest in the real property. The term “payoff” refers to the funds designated to satisfy the note or notes underlying existing lien(s) on the real property.
This payment tendered by the Settlement Agent satisfies the note. However, in most cases the Settlement Agent does not have the authority to release the lien on behalf of the old lender. The old lender holding the note typically has a legal obligation to “release” or “re-convey” the lien within a statutory time period. As part of their duties under the escrow terms, the Settlement Agent must then keep its file open for some time after the closing to search the Court records to determine whether the old lender compiled with their legal duty to release or re-convey the lien on the real property. In most states the Settlement Agent cannot release or reconvey the lien despite their assurance that the old lender accepted and deposited the payoff disbursement funds.
On average, up to thirty percent of real property liens with fully satisfied underlying notes are not released within the statutory period. When this delay occurs, it causes many undue problems and risks for the new lender, the settlement agent, the title insurance company, the seller, the borrower (in a refinance), and the buyer (in a sale). Most States have enacted laws to motivate the old lenders to comply with their duty to release or re-convey the lien after the note they hold or service has been paid and satisfied. Typically, there is a first statute that sets a time period within which sellers must release the Deed of Trust (lien) after closing. A second statute then imposes a fine, penalty or forfeiture on lenders that fail to release or re-convey the Deed (lien) within the statutory time period.
While some governmental storage repositories, such as county courthouses, still store records “the old fashioned way”, on paper documents bound in books, many more such repositories are now storing land conveyance records and indexes in electronic form. An “electronic index” stores all of the descriptive information regarding a specific real estate transaction that a traditional paper record stored on one or more pieces of papers. Typically an electronic index will have one or more fields wherein each field stores a different piece of information, such as settlement date, seller's name, etc., pertinent to the real estate transaction. Each field in an electronic index is typically assigned an attribute, which describes the type of information stored in the field. The term attributes is also commonly used to describe the features or details that are stored in an electronic index. All electronic storage sites and storage repositories have at least one system administrator that monitors the system and aids in performance of the system's overall purpose.
Settlement Agents typically use electronic systems or computer programs to collect and manage information relevant to the settlement process (“Settlement Programs”). There is a trend in the real estate transaction settlement industry to utilize such Settlement Programs to carry out the various duties of the Settlement Agent in its role as escrow agent or the title agent in a real estate transaction closing.
A release tracking system that could tap into such Settlement Programs and the many electronic storage repositories across a state, or the country, could benefit the new lenders providing loans secured by real property, the title insurance companies writing insurance policies on real property and owners/buyers of real property. Monitoring the actions of old lenders under a legal duty to release of re-convey liens and notifying lenders that they are out of compliance, such a system would invoke remedial measures established in particular states thereby enforcing the laws enacted to protect those holders of interest in real property. Such a system would take advantage of the Internet to dramatically decrease the amount of time and money Settlement Agents expend to verify and enforce the release or re-conveyance requirements. Such a system would also provide the following advantages: decrease the risk incurred by Title Insurance Companies insuring priority of new lender's security interests on real property; reduce the cost of release and re-conveyance that old lenders incur to navigate the dynamic requirements of each State to effectuate the release or re-conveyance; and ensure owners that satisfied liens will not encumber the title of their real property.
The existence and popularity of the Internet stems from the fact that hundreds of thousands of separate computer operators and computer networks independently use common data transfer protocols to exchange information. There is no centralized storage location or communication channel for the Internet. The explosive growth in popularity of the Internet is in large part based on the unrestricted communication medium it provides. The Internet has created a very low cost forum in which people can easily publish information and gain access to other desired information. Many computers access the Internet through a device called modem. A modem, which stands for modulator-demodulator, is a device that connects a computer to a telephone line or cable and allows information to be transmitted to or received from another computer or server. Information that is sent over a telephone line is converted by the modem into an audio signal, which is then transmitted by telephone lines to the receiving modem, which converts the signal into information that the receiving computer can understand. Of course connections to the Internet, that do not include telephone lines, are also frequently used. Computers with an all digital connection to the Internet typically use a device called a network card to transmit and receive information. Handshaking is the term used for signal acknowledging, between two computers, that communication or the transfer of information can take place. Handshaking may either be controlled by hardware or software.
The Internet is based on the concept of a client-server relationship between computers, also called a client/server architecture. To access information on the Internet, a user must first log on, or connect, to the client computer's host network. This connection can be established with or without user intervention depending on the software. Once a connection has been established, the user may request information from a remote server. If the information requested by the user resides on one of the computers on the host network, that information is quickly retrieved and sent to the user's terminal. If the information requested by the user is on a server that does not belong to the host LAN, then the host network connects to other networks until it makes a connection with the network containing the requested server. In the process of connecting to other networks, the host may need to access a router, a device that determines the best connection path between networks and helps networks to make connections. Once the client computer makes a connection with the server containing the requested information, the server sends the information to the client in the form of a file. A special computer program called a browser enables the user to view the file. Examples of Internet browsers are Mosaic, Netscape, and Internet Explorer. Non-multimedia documents do not need browsers to view their text-only contents and many multimedia documents provide access to text-only versions of their files. The process of retrieving files from a remote server to the user's terminal is called downloading. The process of transferring files to a remote server is called uploading.